Foseco worldwide , has been associated with the metals Industry for over 75 yearsand is acknowledged as a world leader in the supply of consumable productsfor useinthefoundryindustry with presence in32countriesandmajor facilitiesinGermany,USA, UK, Brazil, China, India,SouthKoreaand

Japan.

Promoters :Foseco is a part of the Ceramics Division (Vesuvius) of Cookson Groupplc, UK which owns 75% stake in the company

Business snapshot:

Foundries form the heart of any manufacturing based economy.

ThebusinessofFosecoIndia Limited is concentrated on the Indian foundry sector.

It is acknowledged as theonly company in the country that possesses the capability ofoffering thewidestrangeofsolutions forproducingcastingofthehighest standardsinterms of quality, surface finish, soundness,integrityand dimensionaltolerance.Itsfocus is onaddingeconomicvaluethrough improvedprocesscapability,castingyield,resourceutilizationand efficiencyanddevelopment of new businessopportunities.

What do Foundry additives do ?

Foseco manufactures products for steel and foundry industry which are used as additives and consumables in the form of granulated flux, alloy additions, and granulated fluxes which improve the physical properties and surface qualities of castings. These help to reduce the cost of melting, moulding and casting for various ferrous and non ferrous metals.

Foundriestypicallyproducecastings that gointodifferentenduser segments.Thesesegmentscanbebroadlyclassifiedintoautomotive, construction,heavy machinery, general engineering and mining.Thereare morethan5,000 foundry units in India, having an installedcapacityof

approximately7.5 million tones per annum, the majority ofwhich(nearly 95%) fall under small-scale industry category. In terms of production,the Indianfoundry industry is the sixth largest in the world aftertheUSA,China,Japan, Russia and Germany, whilst in terms of the number ofpeople

employedand production units, India is the second largest playerinthefoundry industry after China.

Foseco’s performance is directly linked to the the industry growth, in terms ofoverallcasting tonnages.

An example of how Foseco products add value:

One such product from the Foseco stable is "Turbostop", which is a specially designed and engineered "Contoured Impact Pad" (CIP). Till the invention of "Turbostop" the normal process in casting of steel was that molten steel would flow from a ladle and hit a flat impact pad kept at the bottom base of the vessel known as Tundish. The flow of steel after hitting the impact pad was not susceptible to control, this affected the time upto which the molten steel could be retained in the Tundish. Unless the molten steel could be retained for an ideal time - the non-metallic inclusions would not float and would not be capable of removal, resulting in poor quality steel. With Turbostop this difficulty is overcome

Valuation:

Foseco is an investors dream stock in terms of dividend payout. The 6 year dividend record is as follows:

2005 : Rs.17 ( EPS : Rs.19.19)

2006 : Rs.18 ( EPS : Rs.22.96)

2007: Rs.17 ( Rs.28.37)

2008: Rs9.50 ( Rs.22.86)

2009: Rs.9 ( Rs.18.04)

2010: Rs.17 ( Rs.30)

An increase in gross block in 2008 & 2009 saw dividend payout ratio reduced to about 40% as the company expanded capacity. The overall performance in those years was also affected by the overall economic slowdown.

Paid up Equity capital: Rs.6.39 cr

Debt : Rs.11 .05 cr

Revenue : 188 cr ( 2009: 127 cr)

PBT : 29 cr ( 2009: 19 cr)

PAT: 19.3 cr (2009: 12.5 cr)

EPS : Rs.30 ( 2009: Rs.19.5)

The company is currently operating at about 70% of its installed capacityof 29627 tonnes and hence there does not seem any immediate need ( at least for the next 2 years)

Performance for Year ended Dec 2010:

Revenues : 188 cr

PBT : 28.98 cr

PAT : 19.29 cr

EPS : Rs.30

At the current price of Rs.450, the company trades at a PE of 15 times 2010 earnings.

With India emerging as manufacturing hub for a host of industries , overall casting tonnages are likely to see growth . Foseco with its competitive technological advantage, good dividend payout, and shareholder friendly management could be considered as a good long term investment on dips.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock. This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.